SHANGHAI/SINGAPORE -China on Wednesday kept interest rates unchanged on a monthly basis, in line with market expectations, as new signs of economic stabilization and a weakening yuan reduced the need for immediate monetary easing.
Recent economic data shows the world’s second-largest economy is on the rebound, while the yuan’s decline has reduced the urgency for authorities to aggressively cut interest rates to support slowing growth.
The one-year loan prime rate (LPR) was maintained at 3.45 percent, while the five-year LPR remained unchanged at 4.25 percent.
Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences mortgage pricing.
In a Reuters survey of 29 market analysts and traders, all participants predicted there would be no change in the one-year LPR, while a large majority of them also expected the five-year rate to remain stable.
The steady LPR fixes follow the central bank’s decision last week to roll over maturing medium-term policy loans and keep interest rates unchanged last week.
The medium-term loan facility (MLF) rate serves as a guide to the LPR and markets view it as a precursor to any changes in credit benchmarks.
“The monetary policy rollout is maintaining a steady pace, and there are still chances of cuts in LPRs next month,” said Xing Zhaopeng, senior China strategist at ANZ.
“The net interest margin is not an obstacle to interest rate cuts as banks have cut deposit rates.”
Xing added that economic data will continue to improve in the fourth quarter and the low base effect will ensure fourth-quarter growth exceeds 5 percent.
“The policy impact will extend into the coming quarters. We have revised our GDP forecast for 2023 and 2024 to 5.1 percent and 4.2 percent,” he said.
The Chinese central bank last week cut for the second time this year the amount of cash that banks must hold as reserves to boost liquidity and support economic recovery.
China cut its one-year interest rate in August, but surprised markets by leaving its five-year interest rate unchanged.
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